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Washington – Tax on Dance Cover Charges Reclassified

SALT Report 2835 – The Washington Department of Revenue issued a notice regarding the passage of SB 5882, Laws 2013. The Bill creates a provision, which states that taxable amusement and recreation services do not include the opportunity to dance when provided by an establishment in exchange for a cover charge.

As a result, beginning October 1, 2013, cover charges for the “opportunity to dance” are no longer subject to retail sales tax. Therefore, any income received from cover changes will no longer be subject to the Retailing classification of the B&O tax. Instead the income is subject to the B&O tax under the classification, Services and other activities until July 1, 2017.

For purposes of the Bill an “opportunity to dance,” means that an establishment provides a designated physical space, on either a temporary or permanent basis, where customers are allowed to dance and the establishment either advertises or otherwise makes customers aware that it has an area for dancing.

Cover charges are any charge that is required to enter an establishment and will provide the purchaser the opportunity to dance. This includes cash paid at the door to enter the facility, any amounts added to the purchaser’s bill, or any amounts collected after the purchaser enters the facility that will provide the opportunity to dance.

The tax reclassification is effective October 1, 2013, therefore, business owners affected by this change will be required to collect and remit retail sales tax on all cover charges through September 30, 2013.